AT&T Offers Monthly Smartphones Plan in Nod to T-Mobile

July 16 (Bloomberg) -- AT&T Inc., the second-largest U.S.
wireless carrier, will start selling phones and tablets on an
installment plan with the option to upgrade yearly, mimicking a
strategy adopted by rival T-Mobile US Inc. in March.

The new package, called AT&T Next, lets customers buy a new
device for a monthly installment, depending on the price of the
phone, with no down payment or activation fee. After 12
payments, customers can trade in the phone or keep the device
after 20 months of installments, Dallas-based AT&T said in a
statement today.

T-Mobile was the first major U.S. carrier to introduce an
installment plan as part of a campaign aimed at breaking from
the industry’s focus on two-year contracts, which subsidize the
cost of phones for customers. Last week, the Bellevue,
Washington-based company announced a service called Jump, giving
users the option to upgrade phones twice a year for a $10
monthly fee.

“The benefit of these plans has much less to do with
acquiring customers than it does with retaining them,” said
Michael Cote, an industry strategist with the Cote Collaborative
in Chicago. Customers on installment plans tend to be more loyal
because they are paying every month for their next upgrade, said
Cote.

Growth Comeback

The tactics have struck a chord with some T-Mobile
customers. The fourth-largest U.S. wireless carrier reversed a
three-year streak of monthly subscriber losses last quarter,
reaching a key milestone in its turnaround plan, according to
two people familiar with the company.

AT&T’s new service, which starts July 26, requires
customers to pay a monthly installment of $15 to $50, depending
on the device selected. For example, an Apple Inc. iPhone with
64 gigabytes of storage, which costs $849 without a two-year
contract, would be about $42 a month for the first 12 months.

“It’s a very competitive market -- you continually have to
innovate,” Ralph De La Vega, head of AT&T’s mobile business,
said in an interview. “Our customers tell us they want the
capability to get a new device every year. This makes the
highest of the high-end phones available to anyone.”

As the wireless industry endures a slowdown in subscriber
growth, AT&T has been looking to expand into other areas,
including the pay-as-you-go market. Last week, it agreed to buy
Leap Wireless International Inc. for about $1.2 billion. The
move would give AT&T 5 million prepay customers and additional
airwaves to bolster service in more areas.

T-Mobile said AT&T is just playing catch-up with the
installment-plan program.

“AT&T rushed a response to what they’ve seen at T-Mobile,
but this isn’t a strategy,” Chief Marketing Officer Mike
Sievert said in an interview. “They aren’t studying the things
that bother customers.”